TRADE
POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT
AND GOVERNMENT SUMMARIESKenya:
January 2000

The
pursuit of structural and macroeconomic reforms as well
as greater transparency and predictability of existing
legislation would help Kenya's transition to an
outward-oriented economy and improve its ability to
attract the needed foreign investment. A new WTO report
on the trade policies of Kenya says that reforms started
in the early 1990s have had limited results. At the same
time, issues of governance, labour unrest, power
shortages and high utility costs have affected investors'
confidence.

Pursuit
of structural reforms can help attract needed investment
in KenyaBack
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The
new WTO secretariat report, along with a statement from
the Kenyan government, will serve as a basis for the
second trade policy review of Kenya which will take place
in the WTO Trade Policy Review Body on 26 and 28 January
2000.

The
report notes that while the reforms Kenya is engaged in
have resulted in a certain macroeconomic stability
(decline in rate of inflation and decrease in fiscal
deficit), real GDP growth has been slow and unemployment
remains high. The importance of foreign trade for Kenya
has increased but the trade balance has deteriorated.
Kenya imports mainly machinery, transport equipment and
oil products and the European Union remains Kenya's
largest trading partner, both as a source of imports and
a destination for exports.

The
report states that Kenya has dismantled its quantitative
restrictions and eliminated its price controls. In
addition, Kenya is amending some pieces of its
legislation, including on anti-dumping, countervailing
and intellectual property to bring them into conformity
with the WTO Agreements. Kenya now relies on the tariff
as its main trade policy instrument. The report notes
that while Kenya has recently rationalized its tariff
structure, the conversion of all duties - such as mixed
or specific duties - into ad valorem rates would
enhance the transparency of Kenya's tariff regime. In the
same way, limited recourse to "suspended"
duties would reduce room for administrative discretionary
decisions.

The
report notes that, except for timber and fish, Kenya has
no recourse to export duties and has never applied
contingency trade remedies. The report also notes however
that Kenya uses several incentive schemes to promote its
exports. At the same time, the role of the State in the
Kenyan economy remains important, since privatization has
advanced at a slow pace.

The
report says that most of Kenya's business activities are
open to foreigners and that in order to attract
investment, Kenya offers tax incentives to local and
foreign investors in the form of tax holidays,
accelerated depreciation, investment allowances, lower
duties on intermediate capital goods, and gradual
reduction of corporate tax rates. However, due to reduced
investors' confidence, foreign investment in Kenya
remains low. This, in turn, has weighed on economic
growth.

Agriculture
accounts for some 27% of real GDP and around 60% of
earning from total merchandise, the report says. Major
agricultural exports are: tea, coffee and horticultural
products. Kenya's agricultural policy aims to ensure food
security, defined to include self-sufficiency in main
foodstuffs. Thus Government intervention in the sector
persists and reforms are sometimes reversed. The report
notes that the Kenyan economy is currently organized
around agriculture and linkages between agriculture and
other sectors are important. For instance,
agro-processing industries constitute the major branch of
manufacturing.

Manufacturing
accounts for about 13% of Kenya's GDP. The report notes
that Kenya's manufacturing sector has been sluggish in
recent years and liberalization reforms have revealed its
low competitiveness. The already high protection of the
sector did not prevent the collapse of several firms,
particularly in the textiles and clothing industry.

The
services sector is the major foreign exchange earner and
represents around 54% of GDP, the report notes. It is
dominated by tourism, and financial and communication
services. However, its relatively high-cost structure
appears to have imposed a constraint on the development
of other sectors of the economy that are highly dependent
on basic services. State intervention remains present in
most subsectors, including in the financial subsector
where government-owned banks hold the major share of
deposits and loans. The report adds that Kenya has one of
the most developed banking systems in the region and, due
to its geographical location, it has the potential to
provide maritime services to its land-locked neighbours.

Notes
to Editors

trade
policy reviews are an exercise, mandated in the WTO
agreements, in which member countries trade and
related policies are examined and evaluated at regular
intervals. Significant developments which may have an
impact on the global trading system are also monitored.
For each review, two documents are prepared: a policy
statement by the government of the member under review,
and a detailed report written independently by the WTO
Secretariat. These two documents are then discussed by
the WTOs full membership in the Trade Policy Review
Body (TPRB). These documents and the proceedings of the
TPRBs meetings are published shortly afterwards.
Since 1995, when the WTO came into force, services and
trade-related aspects of intellectual property rights
have also been covered.

For
this review, the WTOs Secretariat report, together
with the policy statement prepared by Kenya, will be
discussed by the Trade Policy Review Body on 26 and
28 January 2000. The Secretariat report covers the
development of all aspects of Kenyas trade
policies, including domestic laws and regulations, the
institutional framework, trade policies by measure and by
sector.

Attached
to this press release is a summary of the observations in
the Secretariat report and parts of the government's
policy statement. The Secretariat report and the
governments policy statement are available for the
press in the newsroom of the WTO internet site
(www.wto.org). These two documents and the minutes of the
TPRBs discussion and the Chairmans summing
up, will be published in hardback in due course and will
be available from the Secretariat, Centre William
Rappard, 154 rue de Lausanne, 1211 Geneva 21.

In
the early 1990s Kenya embarked on structural and
macroeconomic reform, including in trade, to establish a
more growth-conducive economic environment. The
transition from import-substitution to outward-oriented
policies has made some progress, but has lagged in some
areas, such as privatization. Macroeconomic stabilization
appears to be taking hold: the rate of inflation was at
6% in 1998, down from nearly 46% at the time of Kenya's
first Trade Policy Review in 1993; and the fiscal deficit
had turned from a deficit equivalent to over 5% of GDP in
1993 to a projected surplus in 1998.

Kenya
has dismantled its quantitative import restrictions and
price controls on major products and the tariff is now
the main trade policy instrument. The tariff structure
has been rationalized, as have incentive schemes. Several
public enterprises have been restructured and the
influence of most agricultural boards reduced. Following
three devaluations of the Kenyan shilling in 1993, a
managed floating exchange rate system was adopted in
1994. However, investor confidence has been affected by
several elements, including issues of governance, labour
unrest, power shortages and high utility costs, and
adverse weather conditions that further weakened the
infrastructure. The factors have contributed to a low
rate of foreign direct investment, which in turn has
weighed on economic growth. The growth of real GDP, which
had been 4.8% in 1995, has slowed since the second half
of 1996, falling to 1.8% in 1999. Unemployment has also
remained high and the trade balance has deteriorated.
Nevertheless, the external debt position is thought to be
manageable.

The
structure of Kenya's economy has remained fairly stable
since the last Review. Agriculture remains the largest
sector of the Kenyan economy, after services. The
agricultural sector accounts for some 27% of real GDP and
around 60% of earnings from total merchandise exports;
some 80% of the population depend on agriculture for
their livelihood. A wide variety of crops is grown in
Kenya; these include maize, rice, wheat, tea  the
leading export crop (one third of the value of
agricultural exports),  coffee, horticultural
products, sugar cane, and fibres. Kenya is the world's
leading supplier of tea, pyrethrum, and bixa. Kenya's
herd of livestock is also diversified. Fishing activities
mostly take place in Lake Victoria. Adverse weather
conditions, organizational problems, weaknesses of
infrastructure, and the lack of financing have hampered
the further development of Kenyan agriculture.

Agri-processing
industries constitute the major branch of manufacturing.
The sector accounts for about 13% of Kenya's GDP but with
a relatively high cost structure its performance has been
sluggish in recent years. The mining and quarrying sector
is still underdeveloped. Mineral products account for
some 10% of total merchandise exports in value, of which
soda ash, the principal product, contributes more than
half. The services sector (excluding construction and
electricity), still dominated by tourism, and financial
and communications services, represents around 54% of
GDP; it is also a major source of employment. Kenya is a
net exporter of services (the major foreign exchange
earner).

An
upward trend in the ratio of merchandise trade to GDP has
meant that the importance of foreign trade has increased
for the Kenyan economy. Kenya's main imports include
machinery and transport equipment from Europe and Asia,
and crude oil and petroleum products from the Middle
East. Imports of agri-foodstuffs fluctuate with domestic
harvests. The European Union (EU) remains Kenya's largest
trading partner (both as a source of imports and a
destination for exports). However, South Africa has
increased its share in Kenyan imports, following its
reintegration into the global economy. The share of
Kenya's exports to the other East African Co-operation
countries (Uganda and Tanzania) nearly doubled between
1993 and 1998, making this trading block the largest
destination for Kenyan products after the EU.

Kenya's
trade policy objectives include moving towards a more
open trade regime, strengthening and increasing overseas
market access for Kenyan products, especially processed
goods, and further integration into the world economy.
These policy objectives have been pursued through
unilateral liberalization, and regional and bilateral
trade negotiations, in particular within the African
region, as well as through its participation in the
multilateral trading system. Kenya is a member of the
Common Market for Eastern and Southern Africa (COMESA),
the East African Co-operation (EAC), the Organization of
African Unity (OAU), and the Inter Governmental Authority
on Development (IGAD).

Trade
policy formulation is the responsibility of several
Ministries, which constitute the Cabinet's Economic
Sub-committee, and the Central Bank. However,
recommendations can be made by two inter-ministerial and
consultative committees, which include the private
sector. No independent bodies review and assess trade
policies in Kenya. Trade policy is implemented mainly by
the Ministry of Tourism, Trade and Industry.

Kenya
is a founding member of the WTO; it accords at least MFN
treatment to all its trading partners. Provisions of the
WTO Agreements cannot be invoked before national courts.
Kenya is not a signatory to the plurilateral agreements
on Government Procurement and Trade in Civil Aircraft.
Kenya is amending some pieces of its legislation,
including on anti-dumping, countervailing and
intellectual property, to bring them into conformity with
the WTO Agreements.

Kenya
encourages foreign investment and grants national
treatment to foreign investors. Most business activities
are open to foreigners, except those related to matters
of security or health. In order to attract investment,
Kenya offers tax incentives to local and foreign
investors in the form of tax holidays, accelerated
depreciation, investment allowances, lower duties on
intermediate capital goods, and gradual reduction of
corporate tax rates. Despite these incentives, Kenya has
been unable to attract much investment, due to reasons
noted earlier. Wide discretionary powers in the
administration of laws and regulations highlight the need
to ensure full compliance with the rule of law and to
address governance issues. The Government has taken, and
continues to take, steps to address these problems.

Tariffs
have become Kenya's main trade policy instrument. Since
the previous Review in 1993, Kenya has reduced the
overall level of protection of its economy. It has
dismantled most non-tariff restrictions, except for
moral, health, security, and environmental reasons, or
under international conventions to which it is a
signatory. The tariff structure has been simplified
through the reduction of the number of bands from eight
in 1994 to five (0, 5%, 10%, 15%, and 25%), and the
lowering of maximum ad valorem rates from 60% in 1992 to
25% in 1999. Mixed duties apply to around 10% of all
tariff lines and specific duties to 30 lines at the
eight-digit level of the Harmonized System (HS);
virtually the same products, including mainly
agricultural and petroleum products, are subject to mixed
or specific duties as at the time of the previous Review.
The conversion of these duties into ad valorem rates
would reduce the complexity and enhance the transparency
of the tariff.

In
addition to tariffs, "suspended" (stand-by)
duties ranging up to 70% increase to 95% the maximum ad
valorem import duties on wheat flour, meslin flour, and
certain types of sugar. The suspended duties replaced
variable duties on food and currently apply to some 17%
of all tariff lines at the HS eight-digit level, in
agriculture and manufacturing. The maximum suspended duty
of 70% also applies to maize, rice, and milk. The simple
average rate of Kenya's non-specific import duties
(inclusive of applied suspended duties) is 18%. Some 3.7%
of all tariff lines are duty free while 38% carry rates
higher than 15%; except paper, paperboard, cards, and
office stationery, rates higher than 35% apply to
agricultural products and their transformations. An
import declaration fee (IDF) of 2.75% is collected on all
imports  including those not subject to the
preshipment inspection that is required for all imports
worth at least US$5,000. The inclusion of the fee raises
to 20.75% the average rate of import duties. In the
aggregate, the positive escalation of Kenya's tariff
(highly pronounced on products such as textiles, wearing
apparel, leather, and metallic, rubber, petroleum, and
chemical products) means that the effective protection
provided to most industries is higher than the nominal
rate. A value-added tax of 15% and excise duties ranging
up to 135% (the excise duties are mixed or specific on
certain products) are levied both on imports and locally
produced goods.

Some
15% of Kenya's tariff lines are bound at ceiling rates
ranging from 18% on pharmaceutical goods to 100% on all
agricultural products. "Other duties and
charges" on all these products are bound at a zero
rate, notwithstanding the imposition of the IDF on all
imports and a fee of 1% on agricultural imports. The
predictability of Kenya's tariff regime could be enhanced
by an increase in the coverage of its tariff bindings and
the narrowing of the gap between bound and applied rates.

Except
for timber and fish, Kenya has abolished export duties
and taxes on all products. In August 1993, Kenya
abolished export subsidies granted under the Export
Compensation Scheme. Three main incentive schemes, i.e.
the Export Processing Zone, the Manufacturing Under Bond
and the Duty Remission Schemes, are currently available
to export-oriented companies. The Minister of Finance
may, on a discretionary basis, remit duties payable on
imports; import duties are remitted on specified inputs
or those used by specified firms, mainly certain
state-owned companies. However, certain agricultural
products and food are subject to special export licences
for self-sufficiency purposes. The sluggishness in the
implementation of the parastatal reform programme since
1996 has meant that several state-owned companies still
hold monopolies or exercise exclusive rights in various
areas of Kenya's economy.

Kenya
has never applied contingency trade remedies
(anti-dumping, countervailing and safeguard measures).
Awareness of the non-compliance of Kenya's legislation on
anti-dumping and countervailing measures, and on
intellectual property, with the relevant WTO Agreements
has led to the ongoing amendment process. Kenya has no
specific legislation on safeguard measures. It retained
the right to use the transitional safeguard mechanism of
Article 6.1 of the WTO Agreement on Textiles and Clothing
but it has not so far notified the lists of products it
was to integrate into the GATT during Phases I
and II. Kenya is to base its customs valuation
method on the transaction value as from
January 2000, i.e. at the end of the transition
period allowed to developing countries under
Article 20 of the WTO Agreement on the
Implementation of Article VII of GATT 1994.

Exemption
from compliance with a compulsory standard may be granted
by the Minister of Industrial Development on a
discretionary basis. Except for goods and services not
available in Kenya and for purchases under projects
funded by foreign institutions, most public procurement
is made through Kenyan-based firms. Kenya is drafting its
legislation on government procurement.

The
Kenyan economy is currently organized around agriculture,
which provides inputs to certain sectors (mainly
manufacturing) and contributes to the development of
others (manufacturing and services). Kenya's agricultural
policy aims to ensure food security, defined to include
self-sufficiency in main foodstuffs. To this end, Kenya
has frequently changed its foreign trade regime for
agricultural products and its agricultural reforms have
often been reversed. Almost all the marketing boards
 there is at least one board for each major crop
 are still in operation, albeit with relatively
limited powers. Producer prices are still set and floor
prices maintained by the boards for certain crops (e.g.
rice, maize, pyrethrum, bixa, cashew nuts, and milk)
because of their dominant position or under their
statutory powers. The liberalization of marketing
functions, while producer prices for certain crops are
still set at low levels by boards, has encouraged exports
of unprocessed commodities.

The
liberalization reforms have revealed the weaknesses of
the intersectoral linkages and the lack of external
competitiveness of Kenya's manufacturing sector. Indeed,
the already high protection of the sector, enhanced by
the rationalization of the tariff structure and of
incentive schemes aimed at promoting exports of local
products after transformation, did not prevent the
collapse of several firms, particularly in the textiles
and clothing industry, which enjoys high tariff
protection. A two-phase industrialization strategy was
formulated in 1997 with a view to further increasing the
value-added content of Kenya's exports of primary
products (Phase I ending in 2006) and promoting more
capital-intensive industries (Phase II ending in 2020).
The mining sector is subject to little tariff protection
but remains dominated by state-owned companies and is
relatively undeveloped.

The
services sector has not performed well in recent years;
its relatively high-cost structure appears to have
imposed a constraint on the development of other sectors
of the economy that are highly dependent on basic
services, such as transportation, telecommunications, and
financial services. State intervention remains present in
most subsectors including in the financial subsector
where government-owned banks hold the major share of
deposits and loans. Reforms in the sector are yet to
fully take hold. Additional efforts to create an
efficient services sector would appear essential for the
further development of the country and to support its new
outward-oriented growth strategy. Under the General
Agreement on Trade in Services (GATS), Kenya made
commitments in telecommunications, financial services,
tourism and travel-related services, and transport
services. Kenya is a net exporter of services, mainly
tourism; however, it would seem to have potential to
export other services, such as financial and
transportation services. Kenya has one of the most
developed banking systems in the region and, due to its
geographical location, it has the potential to provide
maritime services to its land-locked neighbours.

Kenya's
commitments to WTO principles are integral to its
economic policies. In addition to its participation in
the multilateral trading system, Kenya has also pursued
preferential trade agreements as a means of increasing
trade flows.

Kenya
is engaged in reforms that have resulted in a certain
macroeconomic stability. The monetary and fiscal
components of the reforms, combined with the adoption of
a managed floating exchange rate system, have shown signs
of success. Reform efforts have also been made in the
area of trade. Nevertheless, structural reform has been
somewhat hesitant, lengthening the transition state in
which Kenya has been for nearly a decade.

Kenya
intends to actively pursue its trade liberalization and
structural reforms to consolidate the re-orientation of
its economy and complete its transition to an
outward-oriented economy. These measures should
facilitate the efficient allocation of resources
reflecting Kenya's comparative advantages. Improvement of
the low level of its multilateral commitments, the
transparency and predictability of existing legislation,
as well as its enforcement, would create confidence in
the irreversibility of its reforms and render them more
credible, thus improving Kenya's ability to attract the
needed foreign investment and enhancing the country's
adherence to WTO principles.

1.
Kenya's general trade policy objectives are articulated
in the sessional paper No 1 of 1986 on economic
management for renewed growth.

2.
Trade policies in Kenya have evolved over time, changing
from an inward looking import substitution policy regime
to the existing one whose primary objective is the
promotion of exports of consumer and intermediate goods,
while at the same time laying the base for eventual
production of capital goods for both domestic and export
markets. This is expected to lead to higher earnings of
foreign exchange, which in turn will help to reduce the
balance of payments deficit and the unemployment
problems.

3.
The Government has put into place various incentives such
as:

the
duty and VAT remission;

manufacturing
under bond scheme;

export
processing zones;

the
pursuance of a flexible and realistic exchange rate that
promotes exports. Currently, the export compensation
scheme has been abolished since 1993.

4.
Self-sufficiency and expansion of exports are main
objectives of the Government in the agricultural sector.
With these objectives, the Government has evolved a
comprehensive policy framework to meet its stated
priorities covering production, pricing and marketing
(i.e. domestic and export trade). For staple foodstuffs,
the Government has embarked on creating an enabling
environment through gradual liberalization of the
marketing system.

5.
After independence, Kenya relied on the import
substitution of consumer goods, but due to lack of
incentives to foster the production of capital and
intermediate goods, a greater demand for foreign exchange
for import substitution was needed compared to other
sectors. The import substitution policy was biased
towards protection of domestic industries at the expense
of their competitiveness, which in turn enabled
manufacturers to make profits even in cases of under
utilized capacities. Kenyan manufacturers thus became
inward oriented and failed to venture into international
markets. The Government then had to change from this
policy of import substitution to export promotion in
order to acquire more foreign exchange resources, and
increase employment and productivity.

6.
To encourage investment, the Government of Kenya has
resorted to price liberalization. The Government
published the Restrictive Trade Policies, Monopolies and
Price Control Act (1988) to guard against exploitation of
smaller firms by larger enterprises. Import licensing has
now been scrapped except for few items that form the
negative list. This list was enacted under the Import,
Export and Essential Supplies Act, for reasons of public
health, wildlife and environment protection, state and
public security, or to meet required sanitary,
phytosanitary and environmental standards.

7.
Trade policy implementation in Kenya is carried out
mainly by the Ministry of Tourism, Trade and Industry,
the Customs and Excise Department of Kenya Revenue
Authority, as well as Central Bank of Kenya. There are
also a number of government departments or agencies,
which play a role in the implementation of trade laws in
Kenya. The Government, in its revitalization programme,
is committed to a policy of broad-based liberalization,
as well as price liberalization to encourage investment

8.
Kenya's external trade policies are designed to create an
environment conducive to promoting its products in
international markets, especially those of the developed
countries of Europe, America and Japan without prejudice
to the promotion of intra-African trade. Trade policies
are formulated with the view to speeding up Kenya's
industrialization process, and in such away to make
access to foreign markets easier for Kenyan products. In
pursuing these objectives, Kenya has entered into
Multilateral, regional, bilateral and preferential trade
arrangements as detailed below. Kenya is a signatory to
the Lomé convention, and a member of the African
Economic Community, Common Market for Eastern and
Southern Africa (COMESA), East African Community (EAC)
and Inter-governmental authority on Development (IGAD).

10.
Under these agreements, Kenya and its contracting
partners accord each other the MFN treatment in all
matters with respect to their mutual trade relations.
These agreements have been used as instruments for
promoting trade and improving economic relations between
Kenya and these countries.

11.
External trade plays a vital role in the Kenya's economic
development. Key indicators of international trade and
balance of payments show a poor performance in 1998
compared to the previous year. The balance of trade
worsened owing to a marginal growth in imports while
exports almost stagnated.

12.
The volume of trade grew by only 2.5 per cent in 1998 to
stand at Kenya pound 15,948.5 million compared to 13.5
per cent and 8.5 per cent growth registered in 1996 and
1997 respectively. The slackened growth of exports and
imports volume reflects the slow growth of the economy.

13.
Kenya's export earnings, continues to be generated mainly
from exports of primary agricultural products including
coffee, tea and horticulture. Food and beverages
contributed 57.4 per cent of the total export earnings,
while non-food industrial supplies made up 18.3 per cent
in 1998 compared to 22.4 per cent in 1997. Exports of
fuel and lubricants contributed 9.1 per cent of total
export earnings. Export earnings from food and beverages
slightly increased by 6.8% from Kenya pound 3,072.9
million in 1997 to Kenya pound 3,283.3 million in 1998,
mainly due to substantial increase in exports of primary
food and beverages for household consumption, especially
tea, beans and mussels frozen.

14.
In 1998, there was a general increase in the values of
most import categories, although imports of non-food
industrial supplies fell by 11.7% in 1998, compared to a
22.9% increase in 1997. This was mainly due to the
liberalization of trade, through the removal of import
licensing, quantitative import restrictions and foreign
exchange controls.

15.
One effect of the aforementioned measures has been that
the increase in the value of imports has not been matched
by a corresponding increase in export earnings, and the
balance of trade has deteriorated.

16.
In should, however, be noted that even though
liberalization has increased the volume of imports,
exports have also grown but at a lower rate than imports.

17.
African Countries continued to be the major destination
of Kenya's exports followed by the European Union (EU).
In 1998, the market share of total exports to African
countries and European Union (EU) stood at 47.3% and
30.0%, respectively.

18.
The share of total exports to the European Union (EU)
reduced by 2.6% points while of that African countries
increased by 1.3% points. Exports to the Far East and
Middle East accounted for 12.8% and 4.0% of total
exports, respectively.

19.
Exports to all European Union countries except United
Kingdom decreased by 7.5% in 1998, while exports to
Middle East, and Far East and Australia increased by
24.3% and 26.9% respectively. Exports to Uganda and
Tanzania jointly stood at Kenya pound 1,779.1 million,
equivalent to 29.4% of total exports.

20.
The government investment policy is outlined in various
sessional papers and national development plans, the most
notable ones being sessional paper 1 of 1986 on economic
management for renewed growth and sessional paper no. 1
of 1994 on recovery and sustainable development which
emphasizes on the increased role of the private sector in
economic growth. The Government has undertaken key
economic reforms with a view to promote both domestic and
foreign investment. These include abolishing export and
import licensing, rationalizing and reducing import
tariffs, liberalization of foreign exchange and price
controls and partial liberalization of the capital
markets among other measures.

21.
Investment Promotion Centre is a public funded
institution, which was established in 1992 as a one-stop
shop geared to promote investment in the country. IPC
processes all applications for new investments and
forwards recommendations to the Ministry of Finance and
Planning for approval by the Minister. A General
Authority license is issued within one month with prior
approval from the relevant authority in charge of issuing
the license.

22.
The Foreign Investments Protection Act (FIPA) (Cap518)
guarantees repatriation of capital, after tax profits and
remittance of dividends and interests accruing from
investing in the country. The constitution also provides
guarantee against expropriation of private property
unless for security or public interest and when this
happens fair and prompt compensation is paid.

23.
While the Government policy is to formulate and implement
measures in favour of private sector investment, the
following represent a summary of current incentive :

investment
allowance - is provided as an incentive for investment in
the manufacturing and hotel sectors the rate of 60%
countrywide;

depreciation
- liberal rates are allowed for depreciation of assets
based on value as follows:

buildings
and hotels

machinery
e.g. tractors and aircrafts;

loss
carried forward - business enterprises that suffer losses
can carry forward such losses to be offset against future
taxable profits;

duty
remission facility - material imported for use in
manufacture for export or for the production of raw
materials for use in export oriented manufacture or for
the production of duty free items for sale domestically
are eligible for duty remissions. Applications forthis
facility may be made to the Export Promotion Programme
Office in the Ministry of Finance and Planning.

24.
To encourage manufacturing in Kenya for world markets,
the Government has established an in-bond programme open
to both local and foreign investors. IPC and Ministry of
Finance and Planning (Department of Customs and Excise)
administer the program. Enterprises operating under the
programme are offered the following incentives:

exemption
from duty and VAT on imported plant, machinery and
equipment, raw material and other imported inputs; and

25.
Export Processing Zones are coordinated by the Export
Processing Zones Authority (EPZA). A number of EPZs have
already been established. Enterprises operating in export
processing zones in Kenya enjoy the following benefits:

10
years tax holiday and a float 25% tax for the next 10
years;

exemption
from all withholding taxes on dividends and other
payments to non-residents during the first 10 years;